Correlation Between Indutrade and Electrocomponents

Can any of the company-specific risk be diversified away by investing in both Indutrade and Electrocomponents at the same time? Although using a correlation coefficient on its own may not help to predict future stock returns, this module helps to understand the diversifiable risk of combining Indutrade and Electrocomponents into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Indutrade AB and Electrocomponents plc, you can compare the effects of market volatilities on Indutrade and Electrocomponents and check how they will diversify away market risk if combined in the same portfolio for a given time horizon. You can also utilize pair trading strategies of matching a long position in Indutrade with a short position of Electrocomponents. Check out your portfolio center. Please also check ongoing floating volatility patterns of Indutrade and Electrocomponents.

Diversification Opportunities for Indutrade and Electrocomponents

-0.93

Correlation Coefficient

Indutrade  Electrocomponents

Pay attention - limited upside

The 3 months correlation between Indutrade and Electrocomponents is -0.93. Overlapping area represents the amount of risk that can be diversified away by holding Indutrade AB and Electrocomponents plc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Electrocomponents plc and Indutrade is a relative statistical measure of the degree to which these equity instruments tend to move together. The correlation coefficient measures the extent to which returns on Indutrade AB are associated (or correlated) with Electrocomponents. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Electrocomponents plc has no effect on the direction of Indutrade i.e., Indutrade and Electrocomponents go up and down completely randomly.

Pair Corralation between Indutrade and Electrocomponents

Assuming the 90 days horizon Indutrade AB is expected to generate 2.24 times more return on investment than Electrocomponents. However, Indutrade is 2.24 times more volatile than Electrocomponents plc. It trades about 0.22 of its potential returns per unit of risk. Electrocomponents plc is currently generating about -0.16 per unit of risk. If you would invest  2,099  in Indutrade AB on February 2, 2024 and sell it today you would earn a total of  604.00  from holding Indutrade AB or generate 28.78% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Significant
Accuracy	100.0%
Values	Daily Returns

Indutrade AB  vs.  Electrocomponents plc

Indutrade AB

Risk-Adjusted Performance

17 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Indutrade AB are ranked lower than 17 (%) of all global equities and portfolios over the last 90 days. Despite nearly abnormal basic indicators, Indutrade reported solid returns over the last few months and may actually be approaching a breakup point.

Electrocomponents plc

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Electrocomponents plc has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest abnormal performance, the Stock's technical and fundamental indicators remain stable and the current disturbance on Wall Street may also be a sign of long-run gains for the company stockholders.

Pair Trading with Indutrade and Electrocomponents

The main advantage of trading using opposite Indutrade and Electrocomponents positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Indutrade position performs unexpectedly, Electrocomponents can make up some of the losses. Pair trading also minimizes risk from directional movements in the market. For example, if an entire industry or sector drops because of unexpected headlines, the short position in Electrocomponents will offset losses from the drop in Electrocomponents' long position.

The idea behind Indutrade AB and Electrocomponents plc pairs trading is to make the combined position market-neutral, meaning the overall market's direction will not affect its win or loss (or potential downside or upside). This can be achieved by designing a pairs trade with two highly correlated stocks or equities that operate in a similar space or sector, making it possible to obtain profits through simple and relatively low-risk investment.

Check out your portfolio center.

Note that this page's information should be used as a complementary analysis to find the right mix of equity instruments to add to your existing portfolios or create a brand new portfolio. You can also try the Odds Of Bankruptcy module to get analysis of equity chance of financial distress in the next 2 years.